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Refinance Mortgage Applications Soar As Mortgage Rates Drop

May 28th, 2010

The number of refinance mortgage applications soared this past week and applications for purchase transactions are at a thirteen year low. The continuance of historically low mortgage rates and the expiration of the IRS home buyer tax credit had tremendous impact on the economy. Mortgage rates are impacted by several factors. As you use the mortgage calculators on this site, being aware of the direction rates are taking will assist you in more accurately analyzing your mortgage options. Here is some information that impacts mortgage rates and home values to assist you with your mortgage decisions.

Mortgage Applications Spike

News from the Weekly Mortgage Applications Survey released by the Mortgage Bankers Association shows mortgage rates have remained under 5%. The survey covers the week ending May 21, 2010 and stated the average interest rate for a 30 year fixed rate mortgage with a loan to value of 80% was 4.80%, down slightly from the prior week with the cost remaining at 1.08 origination points. Not surprisingly continuing low mortgage rates have fueled a surge in refinance mortgage applications, with the MBA reporting an increase of 17% from the number of refinance applications the prior week, the third week in a row refinance mortgage applications have increased in volume. For the week of the survey refinance applications made up 72% of all mortgage applications.

Purchase Applications Drop, Existing Home Sales Rise

Because of the timing of the data seemingly conflicting reports have come out this week regarding home purchases. First we learned that existing home sales in April climbed 7.6% in April from March and 22.8% from April 2009 according to the National Association of Realtors. The primary factor given for the climb in home sales was the April 30th deadline for home buyers to enter purchase agreements for eligibility to receive the IRS home buyers tax credit. Also helping with the purchases in April were the low mortgage rates and home prices which increased affordability of single family dwellings.

Look for the existing home sales data released in June to show the existing home sales in May 2009 dropped considerably based on the mortgage application surveys from the MBA. For the fourth week in a row the purchase application index has dropped. The number of purchase applications, according to the survey were down 4% for the week and over 27% for the past four weeks. Purchase applications are down 27.5% from a year ago and the index is at its lowest level since April 1997 according to the MBA.

Pre-qualification calculators can help you determine your home value and mortgage affordability. Take advantage of the current home values and historically low mortgage rates for your new home purchase.

Slower Growth

While the number of initial unemployment insurance claims for the week dropped to 460,000 from 471,000 initial claims last week, the trend is still that over 1.2 million Americans every three weeks are filing for unemployment insurance and the unemployment index is perilously close to 10% nationwide. As long as this many workers are losing their jobs every week the consensus is that the Federal Reserve will maintain its position on low interest rates. The jobless claims number is a key piece of data for investors as they forecast the economy and markets, the higher the number of jobless claims the more likely interest rates will remain low in the near future.

In a release this morning the Commerce Department released the Gross Domestic Product (GDP) analysis for the 1st Quarter of 2010 and it showed the economy grew at 3.0%. While positive growth is good news, this comes with some negatives as initial estimates were that the GDP number would be at 3.2%. What is 0.2% you ask? For a $14.5 trillion economy 0.2% (zero point two percent) is $30 billion, a very large number of jobs and commerce. With the GDP number coming in lower than expected the impact on mortgage rates is to dampen any pressures that may arise for higher interest rates.

Combined the major economic data supports continued low rates. Looking ahead for mortgage rates to input into a refinance calculator or compare loans calculator using 5% as an average for conforming mortgage amounts will give you some cushion should rates climb.

As for rates climbing, lately they have taken their direction from the stock markets. If stock prices are up then mortgage rates are rising, if stock prices are down then mortgage rates are dropping, has been the most basic rule of thumb. However, when dealing with historically low mortgage rates waiting for them to become even more historic leaves you open to missing your opportunity and ending up with a higher mortgage rate. Act quickly so you don’t miss out!